On January 1,Mallory Company issued $400,000 of 8%,5-year bonds when the market rate of interest was 6%.The bonds were issued for $433,698 and interest will be paid annually on December 31.How much premium amortization will Mallory record on the first interest payment date using the effective-interest method?

Question

Quizplus · Accepted Answer

Interest expense = Carrying value × Market interest rate
= $433,698 × 0.06 = $26,021.88
Interest payment = Bonds payable × Stated interest rate
= $400,000 × 0.08 = $32,000
Amortization of premium = Interest payment − Interest expense
= $32,000 − $26,021.88 = $5,978.12

On January 1,Mallory Company Issued $400,000 of 8%,5-Year Bonds When